Outbrain acquires competitor Teads in $1 billion deal
Outbrain acquires competitor Teads in $1 billion deal
The merger will create a major player in the online advertising space, presenting significant competition to Israeli company Taboola, with which Outbrain attempted to merge about five years ago.
Israeli company Outbrain has announced it is acquiring American competitor Teads in a $1 billion deal. The transaction consists of $725 million upfront cash and $25 million deferred cash, 35 million shares of common stock of Outbrain, and $105 million of convertible preferred equity.
Outbrain's shares are currently trading at $4.90, reflecting a market value of just $233 million. This deal structure is rare within the high-tech industry and resembles a leveraged buyout, giving Teads' owners a significant stake in the merged company. After the transaction, European telecom corporation Altice, the current owner of Teads, will appoint two directors to the company, who will join Outbrain's existing eight directors. To finance the transaction, Outbrain secured a substantial loan from Goldman Sachs, Jefferies, and other banks.
Upon closing of the transaction, David Kostman, CEO of Outbrain, will serve as CEO of the combined company, with current Teads Co-CEOs, Bertrand Quesada and Jeremy Arditi serving as Co-Presidents. The merger will create a major competitor in the online advertising space, presenting significant competition to Israeli company Taboola, with which Outbrain attempted to merge about five years ago. The two companies are expected to generate combined revenues of $660-680 million in 2024, with an adjusted operating profit of $180-190 million. Starting next year, the merged company anticipates synergies contributing an additional $50-60 million to its adjusted operating profit.
Outbrain had cash balances of just $231 million at the end of the first quarter of this year, so the deal will significantly increase its leverage, with the company taking on more than $1 billion in debt. The companies are similar in size, with estimates indicating that Teads' gross revenue was about $820 million last year, while Outbrain reported $935 million in revenue at the end of 2023.
Since its IPO on Wall Street in 2021, Outbrain has struggled to impress investors, with its stock falling 76% since the IPO, mainly due to a slow growth rate that has been followed by declining revenues in recent quarters. Last February, Outbrain announced the retirement of Yaron Galai, one of the company's founders, who had served as joint CEO for 17 years. David Kostman, who also serves as the chairman of NICE, now remains the sole CEO.
Simultaneously, Outbrain updated its forecast for the second quarter of 2024, now expecting revenues of $55-57 million, up from a previous forecast of $53-57 million, and an adjusted operating profit of $6 million, up from the prior forecast of $1-4 million.
Teads is a privately held American company that has raised $123 million to date, with its headquarters located in New York.
“This is a transformative transaction to establish a true end-to-end, full-funnel platform for the open internet,” said David Kostman, CEO of Outbrain. “The combination of our highly-complementary offerings accelerates our vision to become the preferred partner to deliver meaningful brand outcomes across premium, quality media environments — while scaling the industry-leading offerings Teads is known for. I’m incredibly proud of what our team at Outbrain has created, and strongly believe that with Teads we will build tremendous value for our customers, employees, and partners. I believe this combination and the transaction’s financial structure position Outbrain to deliver significant shareholder value in the years to come.”
